Competition in Rail Transport: A New Opportunity for Railways?

Throughout Europe, and in many other parts of the world, railways are suffering from declining market share and deteriorating financial performance; consequently there is renewed interest in deregulation and the introduction of competition into rail transport as a way of improving performance. An EC Directive now provides for access to rail infrastructure for third parties to run their own international trains in some circumstances. After a long debate, the British Government in July 1992 published a White Paper (New Opportunities for the Railways) which aimed to go much further. It would both open access to the infrastructure for any licensed operator and franchise out existing passenger services via a competitive bidding process; all freight services would be privatised outright. Draft legislation to implement these proposals, as well as a string of consultation documents on details have also been published, and an Interim Report from the Select Committee of Members of Parliament examining the proposals has appeared. This paper review the debate that is currently raging over the British government proposals. It considers the potential for innovation and cost savings which they offer, as well as the problems of increased transactions costs, lack of competitive bidding and other potential inefficiencies of the new system. The key issue of the charging regime for access to the infrastructure is also addressed. It is concluded that competition in the provision of freight services is desirable, but that passenger services present many more problems, and that the proposals need modification if they are to meet their objectives.